Kellogg 2Q15 Earnings Call Notes

We’re on track to hit our target of 2-4% decline in currency neutral operating profit

“We’re on track to meet our guidance for the full year. Specifically, we expect: approximately flat currency-neutral comparable sales; a decline in currency-neutral comparable operating profit of between 2% and 4%, including a negative impact of three to four points from rebasing of incentive compensation'”

Forecast 1B in FCF, repurchase 700m of shares in 2015

“We continue to anticipate that cash flow after capital spending will be approximately $1 billion, as I mentioned. And this includes total incremental cash costs of $350 million for Project K, partially offset by benefits from our supplier-financing initiative and other cash flow initiatives. Total capital spending should be in a range between 4% and 5% of sales, including approximately one point of sales for incremental capital associated with Project K. And our current plan is that we will repurchase between $700 million and $750 million of shares in 2015.”

Cereal as a category has improved

“As you may have seen in public consumption data, the performance of the cereal category has improved this year. Total consumption across all channels was approximately flat in the second quarter, and, importantly, Kellogg branded sales were essentially flat, too,”

Looking to remove artificial flavors/colors

“We know consumers are looking for foods with simpler ingredients and work is well underway to answer that call. Already in North America, 75% of our cereals are made without artificial colors, and more than half are made without artificial flavors. Further, we have been working to remove artificial colors and flavors across Kellogg’s branded cereals and a variety of Kellogg’s branded snack bars as well as Eggo frozen foods. Our goal is to complete this transition by the end of 2018.”

We’re going to start using zero-based budgeting

“Fact is we already ran some pilots on zero-based budgeting back in 2014, so we’ve learned from those pilots. We have determined now the application is right. We’re going to begin in North America. And actually that gives us some support for confidence in growing profit in North America next year. ”

Did close a cereal facility in Canada last year (RE: industry capacity question)

“Obviously, we did close a facility last year in Canada, so that came out of the Kellogg business. I can’t talk to all the stuff that’s going on with our competitors, but I know they’re making moves as well. I think the marketplace is pretty rational at the moment. We’re seeing a little bit of price realization. We’re putting our money, as I said, back into our food”